Non-Manufacturing Activity Strengthens In July – August 5, 2013

On the heels of a stronger-than-expected report on July manufacturing activity, issued last Thursday by the Institute for Supply Management, that same industry group has just reported that the companion series on non-manufacturing activity had strengthened notably as well last month.

Specifically, that data series came in at 56.0. That was materially better than the June reading of 52.2, and moderately ahead of the expected score of 53.3. As noted, this was the second straight report from this group, along with the aforementioned manufacturing survey, that had easily exceeded consensus expectations.

Meanwhile, in addition to the aggregate score of 56.0, which was a full six percentage points above the 50.0 dividing line between an expanding and a contracting non-manufacturing, or services, sector, this latest report also featured improving data on new orders, which surged from 50.8 in June to 57.7 last month. The manufacturing series also had seen a big pickup in new orders.

Moreover, supplier deliveries edged up as well, rising from 51.5 to 52.5, while prices surged, going from a June reading of 52.5 to a result of 60.1 for last month. As inflation is not considered a problem in any regard these days, such an increase is not seen as being worrisome.

On the other hand, employment increased, but at a lesser rate in July than June, going from 54.7 to 53.2, while backlogs fell from 52.0 to 46.5. So, there were some uneven aspects to the report; but in the main, the results were rather reassuring for those consistent in their belief that the nation's economy will be on sound footing moving forward.

Overall, this was the 43rd month in succession that the services sector had shown improvement, with the July score of 56.0 matching the best reading (in February of this year) over the past 12 months, an extended stretch in which this category had averaged 54.6. Overall, then, this data provided further ammunition to those now speculating that the third quarter will see a further step up in growth following the surprising 1.7% jump in GDP growth during the April-through-June period.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.